Kurt's summary of the Internet radio royalty disputePosted on: 07/30/2008

Watching the webcast of the Senate Judiciary Committee hearing on “Music and Radio in the 21st Century: Assuring Fair Rates and Rules across Platforms” was a mind-bendingly frustrating experience, as the various parties involved pingponged randomly from topic to topic, seemingly without rhyme or reason.

If I may, I’m going to try to organize the issues in a nice, clear fashion:

Royalty-setting standard

For decades now, the standard that Congress instructed the Copyright Office to use in royalty-setting proceedings was a multi-part standard called “801b“ that balanced the interests of copyright owners, copyright users, and the general public.

(1) To make determinations concerning… reasonable copyright royalty rates … the rates… shall be calculated to achieve the following objectives:

(A) To maximize the availability of creative works to the public;

(B) To afford the copyright owner a fair return for his creative work and the copyright user a fair income under existing economic conditions;

(C ) To reflect the relative roles of the copyright owner and the copyright user in the product made available to the public with respect to relative creative contribution, technological contribution, capital investment, cost, risk, and contribution to the opening of new markets for creative expression and media for their communication;

(D) To minimize any disruptive impact on the structure of the industries involved and on generally prevailing industry practices.

Seems reasonable, doesn’t it? The ultimate beneficiary is the general public, which benefits when both sides of the equation — creators and distributors — are treated fairly.

But in the Digital Millennium Copyright Act (DMCA), music industry lobbyists got a new standard written into the law, for Internet radio only, called “willing buyer / willing seller“, which has proven, I believe, nearly impossible to interpret or quantify. (A problem is that the copyright owners (e.g., the RIAA) operate as a near-monopoly and the copyright users don’t.)

Basically, the record industry wants the royalty-setting standard to be the first half of point (B) above… and to hell with everything else! (And, incidentally, they disingenuously position all of the money as going to poor musicians, when in fact half of the money goes to the record labels themselves, and a huge portion of the rest goes to the superstar multiplatinum recording acts.)

Now the record industry is trying to get royalty legislation passed that would change the standard for all radio-oriented proceedings to “fair market value.”

It sounds good on the surface — hey, it’s got the word “fair” in it, so it must be fair! — but it’s going to have the same problems as “willing buyer / willing seller” in that it can mean anything either side wants it to mean. Since record companies pay to get radio airplay for new product, maybe fair market value is less than zero. On the other hand, since iTunes pays labels $.70 per song per consumer for downloads, maybe fair market value for radio airplay is, oh, $.55 per song per listener. Who knows?

Astonishingly, the senator who wrote the bill (the PERFORM Act) proposing “fair market value,” Sen. Feinstein (D-CA), said today that she doesn’t know what 801b is — she just intuitively understands that “fair market value” sounds fair. (Hey, it’s got the word “fair” in it!)

Comment

This is all about control by the major labels and the radio conglomerates. The majors want to go back to they days when they controlled what was heard. They don’t like the internet because it levels the playing field.My small company(VEGASFLAVARECORDS) can now go head to head with the majors. People have more choice as to content,regardless of the musical idiom. They only want a few songs played every hour by the same old tired artists and producers. The internet gives fans real choices not dictated by the majors,and they will do everything to kill it. Someone in D.C. is being paid off and we know it. People hate radio, and they hate the majors even more. The internet stations should stop playing the major label releases, and make deals with indies for a lower rate. See how long the majors last then.